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Exchange Rates, Wages, and Export Price Dynamics

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    In this paper, the effects on export prices (in the currency of the exporter) of shocks to the exchange rate, the exporting firms' costs and foreign prices are investigated. The theoretical analysis is done with alternative assumptions regarding the currency in which prices are set and the desired markup. After that, a VAR-framework is used to analyze which theory predicts actual outcome the best. The results indicate that export prices (in the currency of the exporter) respond strongly to exchange rate shocks and the effects seem to be in line with the theory of producer currency pricing and pricing to market. Wage shocks have insignificant effects.

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    File URL: http://www.konj.se/download/18.2cabf50a141002857ee1ce6/Working-Paper-132.pdf
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    Paper provided by National Institute of Economic Research in its series Working Paper with number 132.

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    Length: 51 pages
    Date of creation: 26 Nov 2013
    Date of revision:
    Handle: RePEc:hhs:nierwp:0132
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    1. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    2. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
    3. Adolfson, Malin, 2001. "Export price responses to exogenous exchange rate movements," Economics Letters, Elsevier, vol. 71(1), pages 91-96, April.
    4. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2001. "Micro Foundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Working Paper Series 128, Sveriges Riksbank (Central Bank of Sweden).
    5. Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2007. "Currency Choice and Exchange Rate Pass-through," NBER Working Papers 13432, National Bureau of Economic Research, Inc.
    6. Anders Forslund & Nils Gottfries & Andreas Westermark, 2008. "Prices, Productivity and Wage Bargaining in Open Economies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(1), pages 169-195, 03.
    7. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
    8. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
    9. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
    10. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange rate pass-through into import prices: a macro or micro phenomenon?," Staff Reports 149, Federal Reserve Bank of New York.
    11. Gagnon, Joseph E. & Knetter, Michael M., 1995. "Markup adjustment and exchange rate fluctuations: evidence from panel data on automobile exports," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 289-310, April.
    12. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    13. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    14. Gottfries, Nils, 2002. "Market Shares, Financial Constraints and Pricing Behaviour in the Export Market," Economica, London School of Economics and Political Science, vol. 69(276), pages 583-607, November.
    15. M. Ruth & K. Donaghy & P. Kirshen, 2006. "Introduction," Chapters, in: Regional Climate Change and Variability, chapter 1 Edward Elgar.
    16. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
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